June 23, 2008

Global Market Comments for June 23, 2008

1) It is breathtaking the extent to which the markets ignored the incredible positive results of the weekend's oil summit in Jeddah. The Saudis guaranteed to raise production from 9.4 million barrels/day now to 9.6 million barrels next month to 12.5 million barrels by the end of 2009, and 15 million after that. They provided everything but the handstands, and all the market wanted to focus on was the 1 million barrels/day lost by Nigeria. Crude rose by $4 to $138.25 after the announcement.

2) General Motors drops to $12.75, giving it a market cap of just $7 billion, making it by far the smallest Dow Jones Industrial Average component. The troubled company has launched a last ditch campaign to get rid of bulging unsold stocks of SUV's, offering discounts of up to $7,000 per vehicle or 0% financing for 5 years. This works out to free gas for 3 years for the average driver.

3) Product promotion through social networking sites has been found to be four times more effective than conventional advertising. Procter and Gamble has been cutting new ground here.

4) Talk about a tough business! RV sales in the first four months of this year are down 26% YOY. Sales volumes are at the lowest level since 1991. Some of these behemoths get four miles/gallon. An M1 Abrams tank gets ¼ mile per gallon.

5) The high cost of fuel is making major changes in trade patterns. Heavy products with low labor content that must travel long distances from China have lost their price advantage because of transportation costs. First and foremost affected is steel. Buy US Steel (X) at $175.

6) Wages in China have risen 550% since 1995, compared to 50% in the US.

7) Speculators now account for 70% of the trading in the West Texas crude contract compared to 30% five years ago. Traders must go where the money is.

8) European economies are now rapidly stagnating, led by Southern Europe. Germany is the only country that seems to be holding its own.

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